The functional roles of the medial septal area (MSA) and nucleus basalis magnocellularis (NBM) in memory were investigated to determine (1) their relative contribution to working and reference memory, (2) their operation in spatial and nonspatial memory, (3) the temporal dynamics of the neural activity within these nuclei as they relate to mnemonic processes, (4) the neurochemical regulation of their activity, and (5) the importance of ACh for their function. Working memory was tested in a continuous conditional discrimination (CCD), and reference memory was tested in the CCD and a sensory discrimination (SD). Bipolar recording electrodes in the dentate hilus monitored hippocampal EEG (theta rhythm). Immediately prior to behavioral testing, trained rats were infused with tetracaine, scopolamine, or muscimol into the MSA or NBM, and the subsequent behavioral and physiological changes were measured and correlated. MSA infusions of all three drugs reduced the power of hippocampal theta and impaired choice accuracy in the CCD; the magnitude of both effects was greater for larger doses and steadily decreased over time after the infusion, producing a strong positive correlation between the power of theta and choice accuracy in the CCD. These infusions had no effect on measures of reference memory in the CCD or in the SD. The results demonstrate that rhythmic activity along the septohippocampal pathway reflects processing of nonspatial working, but not reference memory. NBM infusions did not affect hippocampal theta but did reduce choice accuracy in the SD and completely disrupted performance in the CCD. The NBM appears to have a critical role in both working and reference memory.